A lot of meticulous work goes into running a nonprofit. From multi-column income statements to determining fair market value, precision counts. Especially when it comes to a nonprofit’s annual reporting.
Unfortunately being tax-exempt doesn't make you IRS-exempt. The federal government still needs to keep tabs on nonprofit organizations to make sure they’re complying with regulations.
Form 990 series is an important tool to ensure nonprofits are maintaining their tax-exempt requirements throughout the year. And nonprofits need to be careful, because not filing on time (or filing incorrectly) may result in financial penalties. Worst-case, you may lose your tax-exempt privileges!
Take form 990 seriously, because the devil’s in the details. Keep reading to learn about the 990 series so that you can be prepared to choose and file the correct form for your nonprofit.
Why do I need to report annually if I’m tax exempt?
Think of form 990 as a report card — your tax-exempt status is like making honor roll. Basically, you need to prove you still have high enough grades to be there.
Annual reporting for nonprofits is less about taxes and more about compliance. The IRS uses the form 990 series to collect up-to-date information from tax-exempt organizations to ensure they are operating as they should. Additionally, form 990 holds nonprofits accountable to donors and the communities they serve by making these reports public.
Unlike other for-profit tax filing that happens quarterly, nonprofits only need to report once a year (unless a nonprofit is making income from a non-related activity—then it’s subject to quarterly taxes like everyone else). According to the IRS, nonprofits are required to report on the 15th day of the 5 month after the end of their tax year. Tax years can be fiscal or calendar based.
What forms are in the 990 series?
It’s time to figure out which version of form 990 is best suited for your organization. Like Goldilocks and the three bears, your nonprofit will need to choose the form that is just right for its purposes.
Form 990: The largest nonprofit organizations need to fill out form 990. This 12-page document is reserved for organizations with annual gross receipts of over $200,000. If you’re feeling intimidated, the IRS website has plenty of helpful resources, like this very IR…eSque video tutorial. When filling out form 990, keep an eye out for your Schedule M to report your in-kind donations.
Form 990-EZ: This form is for medium-sized nonprofits. Medium means your annual gross receipts are between $50,000 and $200,000, or you have less than $500,000 in assets at the end of the year. Form 990-EZ is slightly less hefty than form 990, coming in at only four pages in length. This form comes with it’s own set of instructions and must be filed electronically.
Form 990-N: For the smallest tax-exempt organizations, the IRS requires form 990-N (e-postcard). Organizations eligible for this option must have annual receipts of less than $50,000. However, if your organization is less than three years old, there are some important exceptions. Organizations eligible to use 990-N can opt to use 990-EZ or 990 if they’d prefer.
As the name suggests, this form must be filed electronically. To do so, you’ll need:
- Your EIN
- Tax Year
- Legal Name and Mailing Address
- Any names your organization uses
- Name and address of a principal officer
- Website address if applicable
- Proof of annual gross receipts of $50,000 or less
- A statement of termination if the organization is closing
Form 990-PF: This form is for tax-exempt organizations that are considered private foundations. Private foundations are tax-exempt entities that acquire funding through a single source as opposed to accepting donations from the public.
It’s worth noting that certain political organizations and most religious organizations don’t need to fill out form 990.
Do I need to file anything at the state level?
In addition to form 990, your state may have other annual requirements when it comes to maintaining your organization's tax-exempt status and good standing.
According to the National Council of Nonprofits there are four filing categories at the state level:
- corporate filings
- financial reports
- fundraising registrations
- state tax-exemption filings
Want to know a shortcut? Most states will accept your federal form 990 as your annual financial report. But double check requirements to make sure nothing additional is needed.
What happens if I don’t file my form 990?
With all of the complicated accounting and budgeting that goes on in a nonprofit, it might be easy to miss a deadline. However, filing your annual form 990 isn’t one you want to lose sight of.
Missing the filing deadline will cost you. Penalties are $20 per day past your deadline if your organization's gross receipts are under $1,000,000 per year. If your gross receipts are over that? Your penalty bumps up to $100 a day. But the IRS isn’t without mercy. The penalty is capped at $10,000 under the $1,000,000 threshold and $50,000 if over it.
Still, it’s not good business to rack up late fees and call them operating costs. Organizations that fail to file properly three years in a row automatically lose their tax-exempt status. On top of fees, your nonprofit could suddenly find itself paying its full tax bill until it’s able to reapply for tax-exemption.
Ready to report?
Whether you're a private foundation or a public charity, if you’re tax-exempt, you have a lot of responsibility on your shoulders.
Form 990 keeps you in good standing at a federal and state level. Without the proper filing, you could be paying hefty fees — or worse yet, an unexpected tax bill. What’s more? Form 990 is the key to maintaining the public’s trust through accessible insights into your organization's activities.
Need help choosing the right version of 990 for your organization? Reach out to KYN today for friendly, expert accounting advice.